Despite the global pandemic creating chaos, the U.S real estate market has shown resilience. Buyers were willing to take advantage of low mortgage rates, and with housing inventory remaining tight, the REIT market outperformed last year. Moreover, the sector’s growth is supported by price increases for rents and higher real-estate values amid the hot inflation.
The Federal Reserve raised interest rates by 0.75%, matching the magnitude of its previous move. In this situation, Morgan Stanley’s (MS) U.S. equity strategist and chief investment officer Mike Wilson believes in defensive plays such as REITs.
REITs are known to perform well during periods of rising long-term interest rates and have historically outperformed in periods of above-average inflation.
Given this backdrop, fundamentally strong REITs New Residential Investment Corp. (NRZ), City Office REIT, Inc. (CIO), Alliance Global Group, Inc. (ALGGY), and TPG RE Finance Trust, Inc. (TRTX) might be solid buys now to hedge against the market turbulence.
New Residential Investment Corp. (NRZ)
NRZ operates as a real estate investment trust (REIT) in the United States. It operates through its Origination; Servicing; MSR Related Investments; Residential Securities; Properties and Loans; Consumer Loans; Mortgage Loans; and corporate segments.
In June, NRZ announced that it had entered into agreements to internalize the company’s management function. The company plans to change its name and rebrand as Rithm Capital Corp. (RITM).
Michael Nierenberg, Chairman, Chief Executive Officer, and President of NRZ, said, “We view this transaction as a way to drive value for shareholders with expected cost savings, incremental synergies and ability to leverage employees across the NRZ ecosystem.”
NRZ’s revenues increased 57.6% year-over-year to $1.73 billion in the first quarter ended March 31. Its net income attributable to common stockholders improved 312.5% year-over-year to $661.86 million. The company’s net income per share of common stock increased 315.2% from its year-ago value to $1.37.
The consensus revenue estimate of $1.12 billion for the fiscal quarter ended June indicates a 146.4% improvement year-over-year. The consensus EPS is expected to be $0.31 for the same period, indicating a 0.6% year-over-year rise. Additionally, NRZ has topped consensus EPS estimates in three of the trailing four quarters, which is impressive.
The stock has gained 12.5% over the past year and 6.9% over the past month to close its last trading session at $10.62.
NRZ’s POWR Ratings reflect this promising outlook. The company has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
NRZ is rated a B in Value and Quality. Within the REITs – Mortgage industry, it is ranked #3 out of 30 stocks. To see additional POWR Ratings for Growth, Momentum, Stability, and Sentiment for NRZ, click here.
City Office REIT, Inc. (CIO)
CIO is an internally managed real estate company that acquires, owns, and operates high-quality office properties located primarily in metropolitan areas in the Southern and Western United States.
On June 16, CIO announced a quarterly dividend amount of $0.20 per share of common stock and common unit of partnership interest for the second quarter of 2022. Additionally, a regular quarterly dividend of $0.4140625 per share of the company’s 6.625% Series A Cumulative Redeemable Preferred Stock was declared. Both dividends were payable on July 22 and reflect the company’s shareholder return ability.
In the same month, CIO announced that it had completed the sale of its Lake Vista Pointe property in Dallas, Texas, for a gross sale price of $43.80 million. The company intended to use the net proceeds from the sale to repay $16.80 million of mortgage debt and for general corporate purposes.
CIO’s rental and other revenues came in at $44.85 million for the first quarter ended March 31, representing a 13.5% year-over-year growth. Its operating income grew 11.1% from the prior-year quarter to $9.09 million, while its cash, cash equivalents, and restricted cash balance rose 43.6% from the same period last year to $47.65 million.
Analysts expect CIO’s revenue for the quarter ended June 2022 to be $44.45 million, indicating an 11.2% year-over-year growth. The company’s EPS for the same quarter is expected to increase 11.4% from the prior-year quarter to $0.39.
CIO has gained 4.2% over the past year and 6.2% over the past month to close its last trading session at $13.51.
It is no surprise that CIO has an overall B rating, which translates to Buy in our POWR Rating system. The stock has a B grade for Growth. It is ranked #2 out of 14 stocks in the REITs – Office industry.
Beyond what we’ve stated above, we have also given CIO grades for Value, Momentum, Stability, Sentiment, and Quality. Get all the CIO ratings here.
Alliance Global Group, Inc. (ALGGY)
ALGGY operates in the real estate development, tourism-entertainment and gaming, food and beverage, quick-service restaurant, and infrastructure development businesses globally. The company, based in Quezon City, the Philippines, operates through Megaworld; Emperador; Travellers; and GADC segments.
For the first quarter of 2022, ALGGY’s revenues increased 17.9% year-over-year to PHP37.50 billion ($673.99 million). Its net profit rose 66.9% from the prior-year period to PHP5.35 billion ($96.16 million). Its EBITDA margin increased 241 basis points from its year-ago value to 30.73%.
The consensus revenue estimate of $2.80 billion for the fiscal year ending December 2022 indicates a 2.7% improvement year-over-year.
Over the past month, ALGGY’s stock has gained 6.2% to close its last trading session at $8.74.
This promising prospect is reflected in ALGGY’s POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
ALGGY has a B grade for Value, Stability, and Quality. It is ranked #1 of 50 stocks in the REITs – Diversified industry. Click here to see the additional POWR Ratings for ALGGY (Growth, Momentum, and Sentiment).
TPG RE Finance Trust, Inc. (TRTX)
TRTX is a commercial real estate finance company that originates, acquires, and manages commercial mortgage loans and other commercial real estate-related debt instruments. The company qualifies as a real estate investment trust for federal income tax purposes.
On June 14, TRTX declared a dividend of $0.24 per share of common stock for the second quarter of 2022, which was payable to shareholders on July 25. This reflects upon the cash generation ability of the company.
In the first quarter ended March 31, TRTX’ net interest income increased 1.7% year-over-year to $38.52 million. Its net income attributable to common stockholders and earnings per common share was $20.44 million and $0.25. The company’s net cash provided by operating activities increased to $32.62 million, up 23.8% from the prior-year quarter.
Street EPS estimate for the fiscal year ending December 2023 of $1.32 reflects a rise of 11.9% year-over-year. Likewise, Street revenue estimate of $161.48 million indicates an improvement of 9.8% from the prior-year period.
TRTX has gained 11.7% over the past month and 4.9% over the past five days to close its last trading session at $10.69.
It is no surprise that TRTX has an overall B rating, which translates to Buy in our POWR Rating system. Additionally, the stock has a B grade for Growth and Sentiment. It is ranked #1 in the REITs – Mortgage industry.
Beyond what we’ve stated above, we have also given TRTX grades for Value, Momentum, Stability, and Quality. Get all the TRTX ratings here.
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REVISED: 2023 Stock Market Outlook (includes top 7 picks)
NRZ shares were trading at $10.80 per share on Thursday afternoon, up $0.18 (+1.69%). Year-to-date, NRZ has gained 5.93%, versus a -13.93% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...
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